A class-action lawsuit alleges diversion of $400 million a year in a Medigap premium rebate scheme that violates Connecticut law, breaches contract with enrollees and misleads consumers.
The suit, filed in a Connecticut U.S. District Court, alleges that UnitedHealth allows AARP to take a 4.9% rebate from monthly beneficiary payments in exchange for AARP sponsoring UnitedHealth’s Medigap plan.
AARP then uses those rebates to pay for the monthly collective group plan premium in order to bind coverage, according to the complaint .
The suit claims an agreement between UnitedHealth and AARP violates Connecticut law by disguising the rebates as an “allowance” or “royalty” payment for AARP’s sponsorship of the plan to avoid paying taxes. The lawsuit claims the payments actually serve as inducements so AARP will continue using UnitedHealth as the carrier of Medigap Plans.
Premium rebates are illegal in Connecticut, and a payer headquartered in Connecticut is subject to this law in their dealings nationwide. UnitedHealth Group is headquartered in Minnetonka, Minn.,but UnitedHealthcare Insurance Company is based in Hartford, Conn.
As reported in Becker’s Hospital Review, the lawsuit claims AARP invests enrollees’ monthly premium payments to earn money during a 31-day grace period before it pays the premiums to UnitedHealthcare. The lawsuit claims AARP pockets the income from these investments without consumers’ knowledge. In 2016, AARP earned almost $45.77 million from the alleged investment vehicle.
Connecticut resident Mark Dane, who purchased AARP Medigap coverage in 2014, filed a class action lawsuit on Wednesday on behalf of “a nationwide class of Medicare-eligible individuals”.
In a comment to FierceHealthcare, AARP said it was in the process of reviewing the lawsuit details, but “it is immediately apparent that the allegations are meritless.”
Similar actions are pending in California and Florida.